It seems like the discussion over rising interest rates and tightening lending practices is once again in the spotlight of the media. This time, the government has decided to keep interest rates the same but instead they changed the maximum amortization period for a mortgage with less than 20% down payment . The amortization period, often referred to as the “payback period” has been reduced from 30 years to 25. This change was brought in by effort to combat high consumer debt. The philosophy behind this change is that by reducing the maximum allowed pay back time, the home owner will be required to pay higher monthly payments and in turn build equity in their homes faster. Under the previous 30 year maximum amortization period, monthly mortgage payments were more spread out, thus the borrower ended up paying less principle off each month, and eventually paid a greater sum of money by the time the term was over. According to CBC news this change in minimal amortization periods may result in a home owner paying around $170 per month extra. The new changes will take effect on July 9th 2012.

– More people will look into buying condos in Mississauga since affording a house in Mississauga is going to be even more expensive.

– Rental demand might go up since less people will become qualified to buy a home.

– The change does not affect you, if you are putting 20% or more down as a down payment.

Negative:

– Some first-time home buyers will need to hold off with buying and instead continue to save for a greater down payment in order to offset higher monthly mortgage payments.

– Investors with less than 20% down, might have more trouble finding a positive cash flow property, as monthly payments are now greater.

What I noticed is that there are very mixed views about these new mortgage rule changes. What do you think about the new mortgage rules affecting the Canadian real estate? We want to hear your opinion.